Can the stock market maintain its momentum in 2025?
Canadian equities are projected to build on their 2024 gains this year, though at a slower pace, as experts highlight both opportunities and challenges in 2025.
Political instability and US tariff threats are expected to heighten market volatility, while strong fundamentals in corporate profits and economic growth provide a solid foundation for continued progress.
The S&P/TSX composite index, which closed 18% higher in 2024, is forecasted to rise further this year. However, Angelo Kourkafas, senior investment strategist at Edward Jones cautioned that the rate of growth could taper in an interview with The Canadian Press.
“When we take a step back and look at the foundation… it is ongoing economic growth,” Kourkafas explained. “It is rising corporate profits and the outlook for lower interest rates at a gradual pace, and all these things will remain in place for 2025.”
Risks loom over growth
Despite the optimism, risks could temper the Canadian market’s growth trajectory, Kourkafas noted. Tariff threats from Donald Trump’s administration and concerns over the overvaluation of US tech stocks, especially in the artificial intelligence sector, have raised alarms.
“There’s a lot of enthusiasm around artificial intelligence, but valuations are a bit stretched,” Kourkafas said.
Closer to home, the federal government’s increased infrastructure spending aims to address the housing shortage and bolster the materials sector. This, along with a weaker Canadian dollar, could attract foreign investments and further support growth in key industries such as energy and financial services.
Interest rates and sector performance
Brianne Gardner, senior wealth manager at Raymond James’ Velocity Investment Partners, pointed to declining interest rates as another critical factor boosting equities. She emphasized that the financial sector stands to benefit from upcoming mortgage renewals, while strong commodity prices will likely drive gains in energy and materials stocks.
Rising corporate profits and earnings across the board as well as lower interest rates from the Bank of Canada are expected to “drive the equity market toward a new record,” Gardner said.
However, Canada’s slower economic growth compared to the US could cause the TSX to lag the S&P 500, she added.
Diversification as key strategy
Brian Madden, chief investment officer at First Avenue Investment Counsel, advised investors to maintain diversified portfolios to weather potential setbacks. His firm continues to recommend a balanced 50-50 approach between Canadian and US investments.
“It’s not that you need to pick one versus the other,” Madden told The Canadian Press. “It’s just that you need to pick the opportunities wherever you find them.”
He advised adopting an active investment approach, focusing on undervalued or mispriced stocks rather than relying heavily on high-profile, widely held companies like the so-called Magnificent Seven.
For investors wary of tariffs, Madden suggested targeting industries likely to be less affected, such as the service sector, which is Canada’s largest industry. Companies with strong pricing power—those able to pass on tariff costs without significant loss of market share—also offer a buffer against such risks, he noted.
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